Class Actions – All State and Federal Discrimination Claims – Financial Services Employment Lawhttps://www.financialservicesemploymentlaw.com
News, Updates, and Insights for Financial Services EmployersThu, 14 Feb 2019 17:17:09 +0000en-UShourly1https://wordpress.org/?v=4.9.9SCOTUS Backs Employee Class Action Waivers: Next Steps for Financial Services Employershttps://www.financialservicesemploymentlaw.com/2018/10/05/scotus-backs-employee-class-action-waivers-next-steps-for-financial-services-employers/
https://www.financialservicesemploymentlaw.com/2018/10/05/scotus-backs-employee-class-action-waivers-next-steps-for-financial-services-employers/#respondFri, 05 Oct 2018 15:37:40 +0000https://www.financialservicesemploymentlaw.com/?p=2191In May, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that employers may lawfully require employees to sign arbitration agreements that include a waiver of the right to participate in an employee class action lawsuit or arbitration. Below, we discuss the significance of this decision and highlight issues that employers may wish to consider in the wake of it.

Continue Reading…]]>In May, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that employers may lawfully require employees to sign arbitration agreements that include a waiver of the right to participate in an employee class action lawsuit or arbitration. Below, we discuss the significance of this decision and highlight issues that employers may wish to consider in the wake of it.

Epic Systems—a Pivotal Win for Employers

The NLRB planted the seed for Epic Systems in 2012, when it first took the position that Section 7 of the National Labor relations Act (“NLRA”)—which affords employees the right to self-organize, bargain collectively, and “engage in other concerted activities”—precludes enforcement of employee class action waivers. The federal Circuit Courts of Appeal split on the NLRB’s position in the ensuing years. Deepening the divide, the DOJ under the current administration broke with the NLRB.

In Epic Systems the Supreme Court rejected the notion that class actions are “concerted activities” inviolable under Section 7 of the NLRA, opining that the term is not a broad catchall. The Court observed that, while the NLRA includes many specific procedural rules, rules relating to class or collective actions are not among them. Absent clear Congressional intent, the Court reasoned that the NLRA could not “displace” the Federal Arbitration Act (“FAA”) and its edict promoting the enforceability of arbitration agreements.

Further, even if the employees could show that “the NLRA actually renders class and collective action waivers illegal[,]” the Court stated that the employees still could not properly invoke the FAA’s “saving” clause, which permits annulment of arbitration agreements “upon such grounds as exist at law or in equity for the revocation of anycontract.” The Court characterized this as an “‘equal-treatment’ rule for arbitration contracts”—i.e., an arbitration contract (including a class action waiver) will be nullified only if it suffers from an elemental flaw in its formation, such as fraud.

Though Epic Systems marks a resonant victory for employers, issues around the scope and effectiveness of class action waivers remain. Financial services employers may wish to consider:

Can our firm implement a class action waiver?

In implementing waivers, the financial services sector must be mindful of FINRA’s regulatory authority. Though any doubt about the lawfulness of consumer class action waivers was erased in 2011, FINRA has since said that a member firm’s use of waivers in customer contracts violates FINRA’s rules “intended to preserve investor access to . . . judicial class actions[.]”

FINRA has not, however, announced a parallel prohibition on waivers in employment agreements. Indeed, the Second Circuit Court of Appeals in 2015 held that FINRA’s arbitral rules—though they preclude arbitration of claims subject to class actions and certain types of collective actions—do not bar employers from enforcing employee waivers.

Should our firm implement a class action waiver?

Although Epic Systems confirms that employers may require employees to waive the right to participate in a class actions, employers still must consider the practical implications. The environment around arbitration agreements and class action waivers is politically-charged, and firms implementing a class action waiver may receive backlash from employees and advocacy groups. Accordingly, any program rollout should be given due consideration.

What is the appropriate vehicle for the waiver?

A class action waiver may be included in an employment policy made available to—and acknowledged indirectly by—employees, or it could be included in a specific agreement that itself requires an employee’s signature. The former may be an easier rollout, but the latter could be less susceptible to a claim that the employee(s) never agreed to the waiver.

Employers also should note that, although Epic Systems addressed class action waivers in the context of arbitration agreements, a class action waiver could also appear in an agreement that permits the parties to choose litigation instead of arbitration, if that is the preference.

To whom will the waiver apply?

Employers should consider whether a waiver will apply to all or some employees. Conditioning a new hire’s employment on a waiver could be fairly straightforward, but rolling out a new requirement to current employees might be more difficult from a practical and legal perspective. As noted in Epic Systems, arbitration agreements (and concomitant waivers) may be nullified under the FAA on fundamental grounds—including, potentially, a lack of “consideration” given in exchange for the waiver. Hence, employers might consider presenting existing employees with waivers in connection with a raise, bonus, promotion, etc.

What form should the waiver take?

Class action waivers should be as simple and concise as possible. Ambiguity may open the door to an adverse interpretation by a court or arbitral panel skeptical of waivers as a general matter. Epic Systems does not offer much guidance in this regard, but various trial and appellate court opinions do.

Might any class or collection actions be outside the scope of even a well-drafted a waiver?

Lastly, even a well-crafted class action waiver may not fully insulate employers. In this vein, the financial services sector—with its nucleus in New York—should keep an eye on a bill introduced in the New York State legislature, the “Empowering People in Rights Enforcement (EMPIRE) Worker Protection Act” (“EWPA”). It would amend New York’s Labor Law such that complainant employee(s) could step into NYSDOL’s shoes and pursue civil penalties “on behalf of . . . other current or former employees” and “allege multiple violations that have affected different employees.” If passed, employees could attempt to use the EWPA as an end-run around class action waivers. Employees may contend that, as NYSDOL itself is not bound by a contractual waiver, employee(s) cloaked with NYSDOL’s authority likewise would be unhindered by that waiver. Employees have made essentially that argument, with success thus far, in relation to California’s Private Attorneys General Act (“PAGA”), after which the EWPA is modeled.

The Second Circuit has given class action waivers another shot in the arm. In Parisi v. Goldman, Sachs & Co. (pdf), plaintiff argued that because she had agreed to arbitrate statutory employment discrimination claims against her employer, but could not proceed in a class-wide arbitration, she must be permitted to pursue her Title VII pattern-or-practice sex discrimination claim as a class action plaintiff in court; otherwise, her arbitration agreement would constitute an impermissible waiver of a substantive statutory right. The Court firmly rejected this argument, holding that there is no substantive statutory right to … Continue Reading

The Second Circuit has given class action waivers another shot in the arm. In Parisi v. Goldman, Sachs & Co. (pdf), plaintiff argued that because she had agreed to arbitrate statutory employment discrimination claims against her employer, but could not proceed in a class-wide arbitration, she must be permitted to pursue her Title VII pattern-or-practice sex discrimination claim as a class action plaintiff in court; otherwise, her arbitration agreement would constitute an impermissible waiver of a substantive statutory right. The Court firmly rejected this argument, holding that there is no substantive statutory right to pursue a pattern-or-practice claim in court. The Court reversed the lower court’s ruling that had refused to compel arbitration of plaintiff’s claim individually.

When plaintiff was promoted to managing director, she signed an agreement that included a mandatory arbitration clause. She was required to pursue “any dispute, controversy or claim arising out of or based upon or relating to Employment Related Matters,” which included Title VII discrimination claims, before NYSE or NASD (the predecessors of FINRA Dispute Resolution), or, if they declined to administer the case, before the American Arbitration Association. The agreement was silent, however, regarding the possibility of proceeding in a class-wide arbitration. Because the Supreme Court subsequently held in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., (pdf) that a party cannot be compelled to arbitrate on a class-wide basis unless it has expressly agreed to do so, and the arbitration provision in question was silent on that issue, plaintiff argued, and the lower court agreed, that “the agreement’s preclusion of class arbitration would make it impossible for Paris to arbitrate a Title VII pattern-or-practice claim, and that consequently, the clause effectively operated as a waiver of a substantive right under Title VII.”

The Second Circuit reversed. Relying on previous Second Circuit case law, the Court noted that “in Title VII jurisprudence ‘pattern-or-practice’ simply refers to a method of proof and does not constitute a ‘freestanding cause of action.’” Further, because Fed. R. Civ. P. 23, which governs federal class actions, is only a procedural vehicle “ancillary to the litigation of substantive claims,” the undisputed fact that private, non-governmental plaintiffs do not have a substantive a right to bring individual pattern-or-practice claims in court means that there is “no entitlement to the ancillary class action procedural mechanism.”

The decision is another great outcome in favor of class action waivers. (We recently reported here, for example, that a FINRA disciplinary hearing panel permitted Charles Schwab & Company, Inc. to maintain its predispute arbitration provision in its customer agreement that includes a class action waiver). It also sets the stage for the Supreme Court’s pending decision in American Express Company v. Italian Colors Restaurant, which, reviewing another Second Circuit decision, will decide whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. Depending on the outcome of that decision, expected before the end of the current term in June, we could see a dramatic increase in the use of class action waivers in both the employment and consumer context.

Mandatory class action waivers may have received an important seal of approval as the result of a recent decision arising in the financial services industry. On February 21, 2013, a Financial Industry Regulatory Authority (FINRA) disciplinary hearing panel permitted Charles Schwab & Company, Inc. to maintain its predispute arbitration provision in its customer agreement that includes a class action waiver (pdf). With this development, now may be the time for firms to evaluate and consider class action waivers in their arbitration agreements with both customers and employees.

Mandatory class action waivers may have received an important seal of approval as the result of a recent decision arising in the financial services industry. On February 21, 2013, a Financial Industry Regulatory Authority (FINRA) disciplinary hearing panel permitted Charles Schwab & Company, Inc. to maintain its predispute arbitration provision in its customer agreement that includes a class action waiver (pdf). With this development, now may be the time for firms to evaluate and consider class action waivers in their arbitration agreements with both customers and employees.

Schwab included the class action waver in its customer agreement as a direct response to the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion (pdf). As the firm has reported previously, Concepcion held that a company can enforce a contract provision that requires arbitration of disputes individually: in other words, a class action waiver. Although the FINRA disciplinary panel noted that Schwab’s agreement technically violates current FINRA Rule 2268 (pdf) and Rule 12204(pdf), which operate in conjunction to preserve the option for customer claims to be resolved in court in a class action, the panel determined these rules are unenforceable pursuant to the Federal Arbitration Act (FAA) and in light of Supreme Court decisions such as Concepcion. In its decision, the panel interpreted “Supreme Court precedents to mean that countervailing policy concerns that might counsel against arbitration of a particular kind of dispute – whether state or federal, statutory or regulatory – cannot override the FAA’s mandate, unless there is a clear expression of congressional intent to carve out an exception to the FAA.”

The Schwab case involved a customer dispute under FINRA’s Customer Code. The Industry Code, which applies to employment disputes with associated persons, contains a rule, 13204 (pdf), that is essentially identical to Rule 12204 and serves the same purpose. Thus, it stands to reason that the rule should be interpreted the same way. Indeed, the Schwab panel noted that interpretation of that version has been inconsistent, but that at least one recent federal court decision in New York already held that enforcement of a class action waiver was not inconsistent with the FINRA rules governing intra-industry disputes. The trend seems clear and the time seems right for class action waivers in both customer and employment agreements.

A few final thoughts: FINRA has appealed the Schwab decision to the National Adjudicatory Council, so the last chapter on the case has not yet been written. Further, the FINRA panel did find that Schwab’s arbitration provision went too far in attempting to preclude FINRA from consolidating multiple parties’ claims into a single arbitration, as permitted by FINRA Rule 12312 (pdf). And, of course, the current National Labor Relations Board would find these class waivers unlawful under the National Labor Relations Act, as applied to non-supervisory employees, as our colleagues have noted here, but that view is not finding favor in the federal courts.

On January 7, 2013, the New Jersey Department of Labor and Workforce Development (the “Department”) published in the New Jersey Register proposed new rules and notification language to implement a recently enacted law intended to fight gender inequity and bias in the workplace. The notice of proposal is available for downloading here.

The law, which became effective on November 19, 2012, requires every employer in New Jersey with 50 or more employees to post a notice advising employees of their right to be free from gender inequity or bias in pay, … Continue Reading

On January 7, 2013, the New Jersey Department of Labor and Workforce Development (the “Department”) published in the New Jersey Register proposed new rules and notification language to implement a recently enacted law intended to fight gender inequity and bias in the workplace. The notice of proposal is available for downloading here.

The law, which became effective on November 19, 2012, requires every employer in New Jersey with 50 or more employees to post a notice advising employees of their right to be free from gender inequity or bias in pay, compensation, benefits, or other terms or conditions of employment under particular state and federal laws.

New Jersey employers are also required to distribute a copy of the notice:

In English and Spanish and any other language that the employer reasonably believes is the first language of a significant number of the employer’s workforce, provided a notice has been issued in that language by the Department;

To all employees no later than 30 days after the notice is issued by the Department;

At the time of an employee’s hiring;

To all employees annually, on or before December 31 of each year (and the employer must obtain a written acknowledgement of receipt); and

At any time upon the first request of an employee.

The notice may be transmitted electronically to employees via e-mail, or via an internet or intranet site, so long as it is accessible and the employer provides notice to employees that the notice has been posted electronically.

Importantly, the notification requirements of the law are not triggered until the New Jersey Commissioner of Labor and Workforce Development issues the form of notification by regulation, which will likely take at least a few months. Employers will have 30 days from the date of the notice of adoption in the New Jersey Register, containing the final form of the notification, to comply with the notification and posting requirements.

A public hearing on the proposed amendments and new rules is scheduled to take place on February 13, 2013, and the due date for public comments is March 23, 2013. The Department’s forthcoming January 22 notice, which provides notice of these dates (and also corrects an error in the January 7 proposal), is available for downloading here.